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European Union Carbon price and data centers

Carbon based energy can lead to considerable extra costs for a data center in the European Union. Since 2005 the carbon price in the EU has moved between the 32.85 and 5.99 euro a ton. Currently there is much uncertainty about the future of the carbon price in the EU.

To enforce the right actions to combat climate change the EU has chosen for ‘cap and trade’. With this market-based approach to control pollution there is a limit (cap) on the total amount of gases that can be emitted by companies in the system. Within this cap, companies receive emission allowances, which they can sell to or buy from one another as needed.

The European Union Emission Trading Scheme (or EU ETS) is the largest multi-national, greenhouse gas emissions trading scheme in the world. In 2005, the European Union started the EU Emission Trading System (EU ETS) and now it covers nearly 50% of all European Union CO2 emissions.

The lower limit for the EU ETS is set at 20MWthermal, but many data centers have their own back-up fossil fuel power supply. For the bigger data centers these direct CO2 emitters are large enough to be included in the EU ETS in their own right.

Under the scheme, all installations regardless of whether they are used on a continuous basis or for standby are obliged to be registered and permitted. For the major part of carbon emissions associated with data centers comes from their direct electricity usage. Only the intermittent emissions from their own on-site, fossil fuelled generators are covered by the EU ETS.

Since the start in 2005, the EU carbon market has experienced a large degree of volatility. One of the reasons is that “The EU ETS has a growing surplus of allowances built up over the last few years,” as said by Connie Hedegaard, EU commissioner for Climate Action. The recent economic downturn has added to that and pushed prices to record lows, raising questions about the effectiveness of the program.

With a EU Allowance top price of 32.85 euro, and a price of just below 17 euro in 2011 there was an all-time low of 5.99 euro in the beginning of April 2012. They allowances are currently trading at around €7.00

To remedy the problem at least temporarily, the European Commission put forward a proposal on July 25: to cut the number of permits auctioned between 2013 and 2015 and sell them later. An action known as backloading. There are no firm proposals in the plans on how many allowances should be withdrawn from sale, but the commission’s own analysis mentions 400 million, 900 million or 1.2 billion of them.

It seems that there are still discussions ongoing; about the issue that changing the auctioning schedule could hurt companies, already under strain due to the economic crisis or the impact on countries with an carbon based energy production (such as Poland).

The disagreement has meant that the commission will now only publish specific figures as well as long term structural changes to the ETS system after the summer recess.

A lot of people are not aware that for the bigger data centers the backup power generators are large enough to be included in the EU ETS in their own right. With this I didnt stated that this generators are currently part of the EU ETS. But there is a chance that it will be a part of EU ET because things are not very clear. A quote from The Green Grid on this, in whitepaper #25:

“There is some discussion on whether the standby generators would qualify a Data Centre for inclusion in the scheme. Currently guidance on this is unclear would and operators should determine if their standby generators would mean inclusion into the scheme. Data Centres with generator capacity of >6MW may be seen as 20MW (Thermal) potential power generation capacity using fossil fuels.”

These initiatives seek to aid those countries for which it may be easier and/or more cost-effective to enhance carbon sinks or cut emissions abroad – rather than on their national territory, based upon the premise that the overall effect of such actions (for the atmosphere) is the same regardless of where (geographically) the action is taken. Emissions trading schemes enable developed countries to acquire assigned amount units (AAUs) from other developed countries that are more able to reduce their emissions. This form of trading allows countries that have achieved emission reductions beyond those required by the Kyoto Protocol to sell their excess reductions to other countries that are finding it more difficult or expensive to meet their commitments.